1976 South Carolina Code of Laws
Unannotated
Updated through the end of the 2002 Session

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Title 38 - Insurance

CHAPTER 90.

CAPTIVE INSURANCE COMPANIES

SECTION 38-90-10. Definitions.

As used in this chapter, unless the context requires otherwise:

(1) "Alien captive insurance company" means an insurance company formed to write insurance business for its parents and affiliates and licensed pursuant to the laws of an alien jurisdiction which imposes statutory or regulatory standards in a form acceptable to the director on companies transacting the business of insurance in such jurisdiction.

(2) "Affiliated company" means a company in the same corporate system as a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management.

(3) "Association" means a legal association of individuals, corporations, partnerships, or associations that has been in continuous existence for at least one year:

(a) the member organizations of which collectively, or which does itself:

(i) own, control, or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or

(ii) have complete voting control over an association captive insurance company incorporated as a mutual insurer; or

(b) the member organizations of which collectively constitute all of the subscribers of an association captive insurance company formed as a reciprocal insurer.

(4) "Association captive insurance company" means a company that insures risks of the member organizations of the association and their affiliated companies.

(5) "Branch business" means any insurance business transacted by a branch captive insurance company in this State.

(6) "Branch captive insurance company" means an alien captive insurance company licensed by the director to transact the business of insurance in this State through a business unit with a principal place of business in this State.

(7) "Branch operations" means any business operations of a branch captive insurance company in this State.

(8) "Captive insurance company" means a pure captive insurance company, association captive insurance company, captive reinsurance company, sponsored captive insurance company, special purpose captive insurance company, or industrial insured captive insurance company formed or licensed under this chapter. For purposes of this chapter, a branch captive insurance company must be a pure captive insurance company with respect to operations in this State, unless otherwise permitted by the director.

(9) "Captive reinsurance company" means a reinsurance company that is formed or licensed pursuant to this chapter and is wholly owned by a qualifying reinsurance parent company. A captive reinsurance company is a stock corporation.

(10) "Consolidated debt to total capital ratio" means the ratio of the sum of (a) all debts and hybrid capital instruments including, but not limited to, all borrowings from banks, all senior debt, all subordinated debts, all trust preferred shares, and all other hybrid capital instruments that are not included in the determination of consolidated GAAP new worth issued and outstanding to (b) total capital, consisting of all debts and hybrid capital instruments as described in subitem (a) plus shareholders' equity determined in accordance with GAAP for reporting to the United States Securities and Exchange Commission.

(11) "Consolidated GAAP net worth" means the consolidated shareholders' equity determined in accordance with GAAP for reporting to the United States Securities and Exchange Commission.

(12) "Controlled unaffiliated business" means a company:

(a) that is not in the corporate system of a parent and affiliated companies;

(b) that has an existing contractual relationship with a parent or affiliated company; and

(c) whose risks are managed by a pure captive insurance company in accordance with Section 38-90-190.

(13) "Director" means the Director of the South Carolina Department of Insurance or the director's designee.

(17) "Industrial insured captive insurance company" means a company that insures risks of the industrial insureds that comprise the industrial insured group and their affiliated companies.

(18) "Industrial insured group" means a group that meets either of the following criteria:

(a) a group of industrial insureds that collectively:

(i) own, control, or hold with power to vote all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer; or

(ii) have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer; or

(b) a group which is created under the Liability Risk Retention Act of 1986 15 U.S.C. Section 3901, et seq., as amended, as a corporation or other limited liability association taxable as a stock insurance company or a mutual insurer under this title.

(19) "Member organization" means any individual, corporation, partnership, or association that belongs to an association.

(20) "Parent" means any corporation, partnership, or individual that directly or indirectly owns, controls, or holds with power to vote more than fifty percent of the outstanding voting securities of a pure captive insurance company.

(21) "Participant" means an entity as defined in Section 38-90-230, and any affiliates of that entity, that are insured by a sponsored captive insurance company, where the losses of the participant are limited through a participant contract to the assets of a protected cell. (22) "Participant contract" means a contract by which a sponsored captive insurance company insures the risks of a participant and limits the losses of the participant to the assets of a protected cell.

(23) "Protected cell" means a separate account established and maintained by a sponsored captive insurance company for one participant.

(24) "Pure captive insurance company" means a company that insures risks of its parent, affiliated companies, controlled unaffiliated business, or a combination thereof.

(25) "Qualifying reinsurer parent company" means a reinsurer authorized to write reinsurance by this State and that has a consolidated GAAP net worth of not less than five hundred million dollars and consolidated debt to total capital ratio not greater than 0.50.

(26) "Special purpose captive insurance company" means a captive insurance company that is formed or licensed under this chapter that does not meet the definition of any other type of captive insurance company defined in this section.

(27) "Sponsor" means an entity that meets the requirements of Section 38-90-220 and is approved by the director to provide all or part of the capital and surplus required by applicable law and to organize and operate a sponsored captive insurance company.

(A) A captive insurance company, when permitted by its articles of incorporation or charter, may apply to the director for a license to do any and all insurance, except workers' compensation insurance, authorized by this title; however:

(1) a pure captive insurance company may not insure any risks other than those of its parent, affiliated companies, controlled unaffiliated business, or a combination thereof;

(2) an association captive insurance company may not insure any risks other than those of the member organizations of its association and their affiliated companies;

(3) an industrial insured captive insurance company may not insure any risks other than those of the industrial insureds that comprise the industrial insured group and their affiliated companies;

(4) in general, a special purpose captive insurance company may only insure the risks of its parent. Notwithstanding any other provisions of this chapter, a special purpose captive insurance company may provide insurance or reinsurance, or both, for risks as approved by the director;

(5) a captive insurance company may not provide personal motor vehicle or homeowner's insurance coverage or any component of these coverages;

(6) a captive insurance company may not accept or cede reinsurance except as provided in Section 38-90-110.

(B) To conduct insurance business in this State a captive insurance company shall:

(1) obtain from the director a license authorizing it to conduct insurance business in this State;

(2) hold at least one board of directors meeting, or in the case of a reciprocal insurer, a subscriber's advisory committee meeting, each year in this State;

(3) maintain its principal place of business in this State, or in the case of a branch captive insurance company, maintain the principal place of business for its branch operations in this State; and

(4) appoint a resident registered agent to accept service of process and to otherwise act on its behalf in this State. In the case of a captive insurance company:

(a) formed as a corporation, whenever the registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the director must be an agent of the captive insurance company upon whom any process, notice, or demand may be served;

(b) formed as a reciprocal insurer, whenever the registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the director must be an agent of the captive insurance company upon whom any process, notice, or demand may be served.

(C)(1) Before receiving a license, a captive insurance company:

(a) formed as a corporation, shall file with the director a certified copy of its charter and bylaws, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the director;

(b) formed as a reciprocal shall:

(i) file with the director a certified copy of the power of attorney of its attorney-in-fact, a certified copy of its subscribers' agreement, a statement under oath of its attorney-in-fact showing its financial condition and any other statements or documents required by the director; and

(ii) submit to the director for approval a description of the coverages, deductibles, coverage limits, and rates and any other information the director may reasonably require. If there is a subsequent material change in an item in the description, the reciprocal captive insurance company shall submit to the director for approval an appropriate revision and may not offer any additional kinds of insurance until a revision of the description is approved by the director. The reciprocal captive insurance company shall inform the director of any material change in rates within thirty days of the adoption of the change.

(2) In addition to the information required by (C)(1), an applicant captive insurance company shall file with the director evidence of:

(a) the amount and liquidity of its assets relative to the risks to be assumed;

(b) the adequacy of the expertise, experience, and character of the person or persons who will manage it;

(c) the overall soundness of its plan of operation;

(d) the adequacy of the loss prevention programs of its parent, member organizations, or industrial insureds as applicable; and

(e) such other factors considered relevant by the director in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

(3) In addition to the information required by (C)(1) and (C)(2) an applicant sponsored captive insurance company shall file with the director:

(a) a business plan demonstrating how the applicant will account for the loss and expense experience of each protected cell at a level of detail found to be sufficient by the director, and how it will report the experience to the director;

(b) a statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, must be made available for inspection or examination by the director;

(c) all contracts or sample contracts between the sponsored captive insurance company and any participants; and

(d) evidence that expenses will be allocated to each protected cell in an equitable manner.

(4) Information submitted pursuant to this subsection is confidential and may not be made public by the director or an agent or employee of the director without the written consent of the company, except that:

(a) information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted the information is a party, upon a showing by the party seeking to discover the information that:

(i) the information sought is relevant to and necessary for the furtherance of the action or case;

(ii) the information sought is unavailable from other nonconfidential sources; and

(iii) a subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the director; however, the provisions of subsection (C)(4) do not apply to an industrial insured captive insurance company insuring the risks of an industrial insured group; and

(b) the director may disclose the information to a public officer having jurisdiction over the regulation of insurance in another state if:

(i) the public official agrees in writing to maintain the confidentiality of the information; and

(ii) the laws of the state in which the public official serves require the information to be confidential.

(D) A captive insurance company shall pay to the department a nonrefundable fee of two hundred dollars for examining, investigating, and processing its application for license, and the director may retain legal, financial, and examination services from outside the department, the reasonable cost of which may be charged against the applicant. Section 38-13-60 applies to examinations, investigations, and processing conducted under the authority of this section. In addition a captive insurance company shall pay a license fee for the year of registration and a renewal fee of three hundred dollars.

(E) If the director is satisfied that the documents and statements filed by the captive insurance company comply with the provisions of this chapter, the director may grant a license authorizing the company to do insurance business in this State until March 1 at which time the license may be renewed.

(F) The terms and conditions set forth in Section 38-5-170 apply in full to captive insurance companies licensed under this chapter.

SECTION 38-90-25. Captive reinsurance companies.

(A) A captive reinsurance company, if permitted by its articles of incorporation or charter, may apply to the director for a license to write reinsurance covering property and casualty insurance or reinsurance contracts. A captive reinsurance company authorized by the director may write reinsurance contracts covering risks in any state.

(B) To conduct business in this State, a captive reinsurance company shall:

(1) obtain from the director a license authorizing it to conduct business as a captive reinsurance company in this State;

(2) hold at least one board of directors' meeting each year in this State;

(3) maintain its principal place of business in this State; and

(4) appoint a registered agent to accept service of process and act otherwise on its behalf in this State.

(C) Before receiving a license, a captive reinsurance company shall file with the director:

(1) a certified copy of its charter and bylaws;

(2) a statement under oath of its president and secretary showing its financial condition; and

(3) other documents required by the director.

(D) In addition to the information required by subsection (C), the applicant captive reinsurance company shall file with the director evidence of:

(1) the amount and liquidity of its assets relative to the risks to be assumed;

(2) the adequacy of the expertise, experience, and character of the person who manages it;

(3) the overall soundness of its plan of operation; and

(4) other overall factors considered relevant by the director in ascertaining if the proposed captive reinsurance company is able to meet its policy obligations.

(E) Information submitted pursuant to this section is confidential and may not be made public by the director or an agent or employee of the director without the written consent of the company, except that:

(1) information may be discoverable by a party in a civil action or contested case to which the submitting captive reinsurance company is a party, upon a showing by the party seeking to discover the information that:

(a) the information sought is relevant to and necessary for the furtherance of the action or case;

(b) the information sought is unavailable from other nonconfidential sources;

(c) a subpoena issued by a judicial or administrative law officer of competent jurisdiction has been submitted to the director; and

(2) the director may disclose the information to the public officer having jurisdiction over the regulation of insurance in another state if:

(a) the public official agrees in writing to maintain the confidentiality of the information; and

(b) the laws of the state in which the public official serves require the information to be confidential.

(F) The provisions of subsection (E) do not apply to an industrial insured captive reinsurance company insuring the risks of an industrial insured group.

SECTION 38-90-30. Adoption of name.

A captive insurance company may not adopt a name that is the same as, deceptively similar to, or likely to be confused with or mistaken for any other existing business name registered in this State.

(A) The director may not issue a license to a captive insurance company unless the company possesses and thereafter maintains unimpaired paid-in capital of:

(1) in the case of a pure captive insurance company, not less than one hundred thousand dollars;

(2) in the case of an association captive insurance company incorporated as a stock insurer, not less than four hundred thousand dollars;

(3) in the case of an industrial insured captive insurance company incorporated as a stock insurer, not less than two hundred thousand dollars;

(4) in the case of a sponsored captive insurance company, not less than five hundred thousand dollars;

(5) in the case of a special purpose captive insurance company, an amount determined by the director after giving due consideration to the company's business plan, feasibility study, and pro-formas, including the nature of the risks to be insured.

The capital may be in the form of cash, cash equivalent, or an irrevocable letter of credit issued by a bank chartered by this State or a member bank of the Federal Reserve System and approved by the director.

(B) The director may prescribe additional capital based upon the type, volume, and nature of insurance business transacted. This capital may be in the form of an irrevocable letter of credit issued by a bank chartered by this State or a member bank of the Federal Reserve System.

(C) In the case of a branch captive insurance company, as security for the payment of liabilities attributable to branch operations, the director shall require that a trust fund, funded by an irrevocable letter of credit or other acceptable asset, be established and maintained in the United States for the benefit of United States policyholders and United States ceding insurers under insurance policies issued or reinsurance contracts issued or assumed, by the branch captive insurance company through its branch operations. The amount of the security may be no less than the capital and surplus required by this chapter and the reserves on these insurance policies or reinsurance contracts, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses and unearned premiums with regard to business written through branch operations; however, the director may permit a branch captive insurance company that is required to post security for loss reserves on branch business by its reinsurer to reduce the funds in the trust account required by this section by the same amount so long as the security remains posted with the reinsurer . If the form of security selected is a letter of credit, the letter of credit must be established by, or issued or confirmed by, a bank chartered in this State or a member bank of the Federal Reserve System.

(D) A captive insurance company may not pay a dividend out of, or other distribution with respect to, capital or surplus, in excess of the limitations set forth in Section 38-21-250 through Section 38-21-270, without the prior approval of the director. Approval of an ongoing plan for the payment of dividends or other distributions must be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the director.

SECTION 38-90-45. Minimum capitalization or reserves.

(A) The director may not issue a license to a captive reinsurance company unless the company possesses and maintains capital or free surplus of not less than the greater of three hundred million dollars or ten percent of reserves. The surplus may be in form of cash or securities.

(B) The director may prescribe additional capital or surplus based upon the type, volume, and nature of the insurance business transacted.

(C) A captive reinsurance company may not pay a dividend out of, or other distribution with respect to, capital or surplus in excess of the limitations, without the prior approval of the director. Approval of an ongoing plan for the payment of dividends or other distributions must be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the director.

(A) The director may not issue a license to a captive insurance company unless the company possesses and thereafter maintains free surplus of:

(1) in the case of a pure captive insurance company, not less that one hundred fifty thousand dollars;

(2) in the case of an association captive insurance company incorporated as a stock insurer, not less than three hundred fifty thousand dollars;

(3) in the case of an industrial insured captive insurance company incorporated as a stock insurer, not less than three hundred thousand dollars;

(4) in the case of an association captive insurance company incorporated as a mutual insurer, not less than seven hundred fifty thousand dollars;

(5) in the case of an industrial insured captive insurance company incorporated as a mutual insurer, not less than five hundred thousand dollars;

(6) in the case of a sponsored captive insurance company, not less than five hundred thousand dollars; and

(7) in the case of a special purpose captive insurance company, an amount determined by the director after giving due consideration to the company's business plan, feasibility study, and pro-formas, including the nature of the risks to be insured.

The surplus may be in the form of cash, cash equivalent, or an irrevocable letter of credit issued by a bank chartered by this State or a member bank of the Federal Reserve System and approved by the director.

(B) Notwithstanding the requirements of subsection (A) a captive insurance company organized as a reciprocal insurer under this chapter may not be issued a license unless it possesses and thereafter maintains free surplus of one million dollars.

(C) The director may prescribe additional surplus based upon the type, volume, and nature of insurance business transacted. This capital may be in the form of an irrevocable letter of credit issued by a bank chartered by this State, or a member bank of the Federal Reserve System.

(D) A captive insurance company may not pay a dividend out of, or other distribution with respect to, capital or surplus in excess of the limitations set forth in Section 38-21-270, without the prior approval of the director. Approval of an ongoing plan for the payment of dividends or other distribution must be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the director.

SECTION 38-90-55. Incorporation of a captive reinsurance company.

(A) A captive reinsurance company must be incorporated as a stock insurer with its capital divided into shares and held by its shareholders.

(B) A captive reinsurance company may not have fewer than three incorporators of whom at least two must be residents of this State.

(C) Before the articles of incorporation are transmitted to the Secretary of State, the incorporators shall petition the director to issue a certificate finding that the establishment and maintenance of the proposed corporation promotes the general good of this State. In arriving at this finding the director shall consider:

(1) the character, reputation, financial standing, and purposes of the incorporators;

(2) the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and

(3) other factors the director considers advisable.

(D) The capital stock of a captive reinsurance company must be issued at par value or greater.

(E) At least one of the members of the board of directors of a captive reinsurance company incorporated in this State must be a resident of this State.

SECTION 38-90-60. Incorporation options and requirements.

(A) A pure captive insurance company or a sponsored captive insurance company must be incorporated as a stock insurer with its capital divided into shares and held by the stockholders.

(B) An association captive insurance company or an industrial insured captive insurance company may be:

(1) incorporated as a stock insurer with its capital divided into shares and held by the stockholders;

(2) incorporated as a mutual insurer without capital stock, the governing body of which is elected by the member organizations of its association; or

(3) organized as a reciprocal insurer in accordance with Chapter 17.

(C) A captive insurance company may not have fewer than three incorporators of whom not fewer than two must be residents of this State.

(D) In the case of a captive insurance company formed as a corporation, before the articles of incorporation are transmitted to the Secretary of State, the incorporators shall petition the director to issue a certificate setting forth a finding that the establishment and maintenance of the proposed corporation will promote the general good of the State. In arriving at this finding the director shall consider:

(1) the character, reputation, financial standing, and purposes of the incorporators;

(2) the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and

(3) other aspects as the director considers advisable.

(E) The articles of incorporation, the certificate issued pursuant to subsection (D), and the organization fees required by Section 33-1-220 must be transmitted to the Secretary of State, who shall record both the articles of incorporation and the certificate.

(F) In the case of a captive insurance company formed as a reciprocal insurer, the organizers shall petition the director, to issue a certificate setting forth the director's finding that the establishment and maintenance of the proposed association will promote the general good of the State. In arriving at this finding the director shall consider:

(1) the character, reputation, financial standing, and purposes of the incorporators;

(2) the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and

(3) other aspects the director considers advisable.

(G) In the case of a captive insurance company licensed as a branch captive insurance company, the alien captive insurance company shall petition the director to issue a certificate setting forth the director's finding that, after considering the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors of the alien captive insurance company, the licensing and maintenance of the branch operations will promote the general good of the State. The alien captive insurance company may register to do business in this State after the director's certificate has been issued.

(H) The capital stock of a captive insurance company incorporated as a stock insurer must be issued at not less than par value.

(I) In the case of a captive insurance company formed as a corporation, at least one of the members of the board of directors of a captive insurance company incorporated in this State must be a resident of this State.

(J) In the case of a captive insurance company formed as a reciprocal insurer, at least one of the members of the subscribers' advisory committee must be a resident of this State.

(K) A captive insurance company formed as a corporation under this chapter has the privileges and is subject to the provisions of the general corporation law as well as the applicable provisions contained in this chapter. If a conflict occurs between a provision of the general corporation law and a provision of this chapter, the latter controls. The provisions of this title pertaining to mergers, consolidations, conversions, mutualizations, and redomestications apply in determining the procedures to be followed by a captive insurance company in carrying out any of the transactions described in those provisions, except the director may waive or modify the requirements for public notice and hearing in accordance with regulations which the director may promulgate addressing categories of transactions. If a notice of public hearing is required, but no one requests a hearing, the director may cancel the hearing.

(L)(1) A captive insurance company formed as a reciprocal insurer under this chapter has the privileges and is subject to Chapter 17 in addition to the applicable provisions of this chapter. If a conflict occurs between the provisions of Chapter 17 and the provisions of this chapter, the latter controls. To the extent a reciprocal insurer is made subject to other provisions of this title pursuant to Chapter 17, the provisions are not applicable to a reciprocal insurer formed under this chapter unless the provisions are expressly made applicable to a captive insurance company under this chapter.

(2) In addition to the provisions of (L)(1), a captive insurance company organized as a reciprocal insurer that is an industrial insured group has the privileges and is subject to the provisions of Chapter 17 in addition to applicable provisions of this title.

(M) The articles of incorporation or bylaws of a captive insurance company may authorize a quorum of a board of directors to consist of no fewer than one-third of the fixed or prescribed number of directors as provided for in Section 33-8-240(b).

SECTION 38-90-70. Reports.

(A) A captive insurance company may not be required to make an annual report except as provided in this chapter.

(B) Before March first of each year, a captive insurance company or a captive reinsurance company shall submit to the director a report of its financial condition, verified by oath of two of its executive officers. Except as provided in Sections 38-90-40 and 38-90-50, a captive insurance company or a captive reinsurance company shall report using generally accepted accounting principles, unless the director approves the use of statutory accounting principles, with useful or necessary modifications or adaptations required or approved or accepted by the director for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the director. Except as otherwise provided, an association captive insurance company and an industrial insured group shall file its report in the form required by Section 38-13-80, and each industrial insured group shall comply with the requirements set forth in Section 38-13-85. The director by regulation shall prescribe the forms in which pure captive insurance companies and industrial insured captive insurance companies shall report.

(C) A pure captive insurance company may make written application for filing the required report on a fiscal year-end that is consistent with the parent company's fiscal year. If an alternative reporting date is granted:

(1) the annual report is due sixty days after the fiscal year-end:

(2) in order to provide sufficient detail to support the premium tax return, the pure captive insurance company shall file before March 1 of each year for each calendar year-end, pages 1 through 7 of the "Captive Annual Statement: Pure or Industrial Insured", verified by oath of two of its executive officers.

(D) Sixty days after the fiscal year end, a branch captive insurance company shall file with the director a copy of all reports and statements required to be filed under the laws of the jurisdiction in which the alien captive insurance company is formed, verified by oath by two of its executive officers. If the director is satisfied that the annual report filed by the alien captive insurance company in its domiciliary jurisdiction provides adequate information concerning the financial condition of the alien captive insurance company, the director may waive the requirement for completion of the captive annual statement for business written in the alien jurisdiction. Such waiver must be in writing and subject to public inspection.

(A) A sponsored captive insurance company and a captive reinsurance company may discount its loss and loss adjustment expense reserves at treasury rates applied to the applicable payments projected through the use of the expected payment pattern associated with the reserves.

(B) A sponsored captive insurance company and a captive reinsurance company shall file annually an actuarial opinion on loss and loss adjustment expense reserves provided by an independent actuary. The actuary may not be an employee of the captive company or its affiliates.

(C) The director may disallow the discounting of reserves if a sponsored captive insurance company or a captive reinsurance company violates a provision of this title.

(A) At least once in three years, and whenever the director determines it to be prudent, the director personally, or by a competent person appointed by the director, shall visit each captive insurance company and thoroughly inspect and examine its affairs to ascertain its financial condition, its ability to fulfill its obligations, and whether it has complied with this chapter. The director upon application, in his discretion, may enlarge the three-year period to five years, if a captive insurance company is subject to a comprehensive annual audit during that period of a scope satisfactory to the director by independent auditors approved by the director. The expenses and charges of the examination must be paid to the State by the company or companies examined and the department shall issue its warrants for the proper charges incurred in all examinations.

(B) All examination reports, preliminary examination reports or results, working papers, recorded information, documents and copies of documents produced by, obtained by, or disclosed to the director or any other person in the course of an examination made under this section are confidential and are not subject to subpoena and may not be made public by the director or an employee or agent of the director without the written consent of the company, except to the extent provided in this subsection. Nothing in this subsection prevents the director from using this information in furtherance of the director's regulatory authority under this title. The director may grant access to this information to public officers having jurisdiction over the regulation of insurance in any other state or country, or to law enforcement officers of this State or any other state or agency of the federal government at any time, so long as the officers receiving the information agree in writing to hold it in a manner consistent with this section.

(C)(1) This section applies to all business written by a captive insurance company; however, the examination for a branch captive insurance company must be of branch business and branch operations only, as long as the branch captive insurance company provides annually to the director, a certificate of compliance, or its equivalent, issued by or filed with the licensing authority of the jurisdiction in which the branch captive insurance company is formed and demonstrates to the director's satisfaction that it is operating in sound financial condition in accordance with all applicable laws and regulations of that jurisdiction.

(2) As a condition of licensure, the alien captive insurance company shall grant authority to the director for examination of the affairs of the alien captive insurance company in the jurisdiction in which the alien captive insurance company is formed.

(D) To the extent that the provisions of Chapter 13 do not contradict the provisions of this section, Chapter 13 applies to captive insurance companies licensed under this chapter.

SECTION 38-90-90. Suspension or revocation of license.

(A) The license of a captive insurance company to conduct an insurance business in this State may be suspended or revoked by the director for:

(1) insolvency or impairment of capital or surplus;

(2) failure to meet the requirements of Sections 38-90-40 or 38-90-50;

(3) refusal or failure to submit an annual report, as required by Section 38-90-70, or any other report or statement required by law or by lawful order of the director;

(4) failure to comply with its own charter, bylaws, or other organizational document;

(5) failure to submit to examination or any legal obligation relative to an examination, as required by Section 38-90-80;

(6) refusal or failure to pay the cost of examination as required by Section 38-90-80;

(7) use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or

(8) failure otherwise to comply with laws of this State.

(B) If the director finds, upon examination, hearing, or other evidence, that a captive insurance company has committed any of the acts specified in subsection (A) of this section, the director may suspend or revoke such license if the director considers it in the best interest of the public and the policy holders of the captive insurance company, notwithstanding any other provision of this title.

SECTION 38-90-100. Applicability of investment requirements; loans.

(A) An association captive insurance company and an industrial insured captive insurance company insuring the risks of an industrial insured group shall comply with the investment requirements contained in this title. Notwithstanding any other provision of this title, the director may approve the use of alternative reliable methods of valuation and rating.

(B) A pure captive insurance company, an industrial insured captive insurance company, and a sponsored captive insurance company are not subject to any restrictions on allowable investments contained in this title; however, the director may prohibit or limit an investment that threatens the solvency or liquidity of the company.

(C) Only a pure captive insurance company may make loans to its parent company or affiliates and only upon the prior written approval of the director and must be evidenced by a note in a form approved by the director. Loans of minimum capital and surplus funds required by Sections 38-90-40(A) and 38-90-50(A) are prohibited.

SECTION 38-90-110. Reinsurance; effect on reserves.

(A) A captive insurance company may provide reinsurance, as authorized in this title, on risks ceded by any other insurer.

(B) A captive insurance company may take credit for reserves on risks or portions of risks ceded to reinsurers complying with the provisions of Sections 38-9-200, 38-9-210, and 38-9-220. A captive insurer may not take credit for reserves on risks or portions of risks ceded to a reinsurer if the reinsurer is not in compliance with Sections 38-9-200, 38-9-210, and 38-9-220.

SECTION 38-90-120. Requirement to join ratings organization.

A captive insurance company may not be required to join a rating organization.

A captive insurance company, including a captive insurance company organized as a reciprocal insurer under this chapter, may not join or contribute financially to a plan, pool, association, or guaranty or insolvency fund in this State, and a captive insurance company, or its insured or its parent or any affiliated company or any member organization of its association, or in the case of a captive insurance company organized as a reciprocal insurer, a subscriber of the company, may not receive a benefit from a plan, pool, association, or guaranty or insolvency fund for claims arising out of the operations of such captive insurance company.

(A) A captive insurance company shall pay to the department by March 1 of each year, a tax at the rate of four-tenths of one percent on the first twenty million dollars and three-tenths of one percent on the next twenty million dollars and two-tenths of one percent on the next twenty million dollars and seventy-five thousandths of one percent on each dollar thereafter on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December 31 next preceding, after deducting from the direct premiums subject to the tax the amounts paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders.

(B) A captive insurance company shall pay to the department by March 1 of each year, a tax at the rate of two hundred and twenty-five thousandths of one percent on the first twenty million dollars of assumed reinsurance premium, and one hundred fifty thousandths of one percent on the next twenty million dollars and fifty thousandths of one percent on the next twenty million dollars and twenty-five thousandths of one percent of each dollar thereafter. However, no reinsurance tax applies to premiums for risks or portions of risks which are subject to taxation on a direct basis pursuant to subsection (A). A premium tax is not payable in connection with the receipt of assets in exchange for the assumption of loss reserves and other liabilities of another insurer under common ownership and control if the transaction is part of a plan to discontinue the operations of the other insurer and if the intent of the parties to the transaction is to renew or maintain business with the captive insurance company.

(C) If the aggregate taxes to be paid by a captive insurance company calculated under subsections (A) and (B) amount to less than five thousand dollars in any year, the captive insurance company shall pay a minimum tax of five thousand dollars for that year. However, in the calendar year in which a captive is first licensed, the minimum tax will be prorated on a quarterly basis. For captives licensed in the first quarter, the prorated minimum tax is five thousand dollars. For captives licensed in the second quarter, the prorated minimum tax is three thousand seven hundred fifty dollars. For captives licensed in the third quarter, the prorated minimum tax is two thousand five hundred dollars. For captives licensed in the fourth quarter, the prorated minimum tax is one thousand two hundred fifty dollars. In the calendar year in which a captive is first licensed, if the aggregate taxes to be paid by a captive insurance company calculated under subsections (A) and (B) amount to less than the minimum tax prorated on a quarterly basis, the captive insurance company shall pay the prorated minimum tax for that calendar year.

(D) A captive insurance company failing to make returns or to pay all taxes required by this section, is subject to the relevant sanctions of this title.

(E) Two or more captive insurance companies under common ownership and control must be taxed, as though they were a single captive insurance company.

(F) For the purposes of this section, "common ownership and control" means:

(1) in the case of stock corporations, the direct or indirect ownership of eighty percent or more of the outstanding voting stock of two or more corporations by the same shareholder or shareholders; and

(2) in the case of mutual corporations, the direct or indirect ownership of eighty percent or more of the surplus and the voting power of two or more corporations by the same member or members.

(G) In the case of a branch captive insurance company, the tax provided for in this section applies only to the branch business of the company.

(H) The tax provided for in this section constitutes all taxes collectible under the laws of this State from a captive insurance company, and no other occupation tax or other taxes may be levied or collected from a captive insurance company by the State or a county, city, or municipality within this State, except ad valorem taxes on real and personal property used in the production of income.

SECTION 38-90-145. Annual captive reinsurance tax.

(A) A captive reinsurance company shall pay to the department by March first of each year a captive reinsurance tax of five thousand dollars.

(B) The tax provided in this section is the only tax collectible pursuant to the laws of this State from a captive reinsurance company, and no tax on reinsurance premiums, other than occupation tax, nor any other taxes may be levied or collected from a captive reinsurance company by the State or a county, city, or municipality within this State, except ad valorem taxes on real and personal property used in the production of income.

(C) A captive reinsurance company failing to make returns or to pay all taxes required by this section is subject to sanctions provided in this title.

SECTION 38-90-150. Rules, regulations, and orders.

The director may promulgate and, from time to time, amend rules and regulations and issue orders relating to captive insurance companies as are necessary to enable the director to carry out the provisions of this chapter.

(A) No provisions of this title, other than those contained in this chapter or contained in specific references contained in this chapter, apply to captive insurance companies.

(B) The director may, by rule, regulation, or order, exempt special purpose captive insurance companies, on a case by case basis, from provisions of this chapter that he determines to be inappropriate given the nature of the risks to be insured.

SECTION 38-90-170. Applicability of title provisions pertaining to insurance reorganizations, receiverships, and injunctions.

The terms and conditions set forth in this title pertaining to insurance reorganizations, receiverships, and injunctions apply in full to captive insurance companies formed under this chapter.

(A) There is hereby created a fund to be known as the Captive Insurance Regulatory and Supervision Fund for the purpose of providing the financial means for the director to administer Chapter 87 and Chapter 90 of this title and for reasonable expenses incurred in promoting the captive insurance industry in the State. The transfer of ten percent of the taxes collected by the department pursuant to Chapter 90 of this title, and all fees and assessments received by the department pursuant to the administration of this chapter shall be credited to this fund. All fees received by the department from reinsurers who assume risk solely from captive insurance companies, shall be deposited into the Captive Insurance Regulatory and Supervision Fund. All fines and administrative penalties, however, shall be deposited directly into the general fund.

(B) All payments from the Captive Insurance Regulatory and Supervision Fund for the maintenance of staff and associated expenses including contractual services as necessary, shall be disbursed from the state treasury only upon warrants issued by the director, after receipt of proper documentation regarding services rendered and expenses incurred.

(A) Except as otherwise provided in this section, the terms and conditions set forth in Chapters 26 and 27 pertaining to insurance reorganizations, receiverships, and injunctions apply in full to captive insurance companies formed or licensed under this chapter.

(B) In the case of a sponsored captive insurance company:

(1) the assets of the protected cell may not be used to pay expenses or claims other than those attributable to the protected cell; and

(2) its capital and surplus at all times must be available to pay expenses of or claims against the sponsored captive insurance company and may not be used to pay expenses or claims attributable to a protected cell.

The director shall promulgate regulations establishing standards to ensure that a parent or affiliated company is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by the pure captive insurance company; however, until such time as these regulations are promulgated, the director may by temporary order grant authority to a pure captive insurance company to insure risks.

(A) An association captive insurance company or industrial insured group formed as a stock or mutual corporation may be converted to or merged with and into a reciprocal insurer in accordance with a plan and the provisions of this section.

(B) A plan for this conversion or merger:

(1) must be fair and equitable to the shareholders, in the case of a stock insurer, or the policyholders, in the case of a mutual insurer; and

(2) shall provide for the purchase of the shares of any nonconsenting shareholder of a stock insurer of the policyholder interest of any nonconsenting policyholder of a mutual insurer in substantially the same manner and subject to the same rights and conditions as are accorded a dissenting shareholder or a dissenting policyholder under Chapter 13, Title 33.

(C) In the case of a conversion authorized under subsection (A):

(1) the conversion must be accomplished under a reasonable plan and procedure as may be approved by the director; however, the director may not approve the plan of conversion unless the plan:

(a) satisfies the provisions of subsection (B);

(b) provides for a hearing, of which notice has been given to the insurer, its directors, officers and stockholders, in the case of a stock insurer, or policyholders, in the case of a mutual insurer, all of whom have the right to appear at the hearing, except that the director may waive or modify the requirements for the hearing; however, if a notice of hearing is required, but no hearing is requested, the director may cancel the hearing;

(c) provides for the conversion of existing stockholder or policyholder interests into subscriber interests in the resulting reciprocal insurer, proportionate to stockholder or policyholder interests in the stock or mutual insurer; and

(d) is approved;

(i) in the case of a stock insurer, by a majority of the shares entitled to vote represented in person or by proxy at a duly called regular or special meeting at which a quorum is present;

(ii) in the case of a mutual insurer, by a majority of the voting interests of policyholders represented in person or by proxy at a duly called regular or special meeting at which a quorum is present;

(2) the director shall approve the plan of conversion if the director finds that the conversion will promote the general good of the State in conformity with those standards set forth in Section 38-90-60(2);

(3) if the director approves the plan the director shall amend the converting insurer's certificate of authority to reflect conversion to a reciprocal insurer and issue the amended certificate of authority to the company's attorney-in-fact;

(4) upon issuance of an amended certificate of authority of a reciprocal insurer by the director, the conversion is effective; and

(5) upon the effectiveness of the conversion the corporate existence of the converting insurer shall cease and the resulting reciprocal insurer shall notify the Secretary of State of the conversion.

(D) A merger authorized under subsection (A) must be accomplished substantially in accordance with the procedures set forth in this title except that, solely for purposes of the merger:

(1) the plan or merger shall satisfy subsection (B);

(2) the subscribers' advisory committee of a reciprocal insurer must be equivalent to the board of directors of a stock or mutual insurance company;

(3) the subscribers of a reciprocal insurer must be the equivalent of the policyholders of a mutual insurance company;

(4) if a subscribers' advisory committee does not have a president or secretary, the officers of the committee having substantially equivalent duties are deemed the president and secretary of the committee;

(5) the director shall approve the articles of merger if the director finds that the merger will promote the general good of the State in conformity with those standards set forth in Section 38-90-60(D)(2). If the director approves the articles of merger, the director shall endorse his or her approval on the articles and the surviving insurer shall present the name to the Secretary of State at the Secretary of State's office;

(6) notwithstanding Section 38-90-40, the director may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this section; however, there may be no more than one authorized insurance company surviving the merger;

(7) an alien insurer may be a party to a merger authorized under subsection (A) if the requirements for the merger between a domestic and a foreign insurer under Chapter 21 apply to a merger between a domestic and an alien insurer under this subsection. The alien insurer must be treated as a foreign insurer under Chapter 21 and other jurisdictions must be the equivalent of a state for purposes of Chapter 21.

(E) A conversion or merger under this section has all the effects set forth in Chapter 21, to the extent these effects are not inconsistent with this chapter.

(A) One or more sponsors may form a sponsored captive insurance company under this chapter.

(B) A sponsored captive insurance company formed or licensed under this chapter may establish and maintain one or more protected cells to insure risks of one or more participants, subject to the following conditions:

(1) the shareholders of a sponsored captive insurance company must be limited to its participants and sponsors;

(2) each protected cell must be accounted for separately on the books and records of the sponsored captive insurance company to reflect the financial condition and results of operations of the protected cell, net income or loss, dividends or other distributions to participants, and other factors may be provided in the participant contract or required by the director;

(3) the assets of a protected cell must not be chargeable with liabilities arising out of any other insurance business the sponsored captive insurance company may conduct;

(4) no sale, exchange, or other transfer of assets may be made by the sponsored captive insurance company between or among any of its protected cells without the consent of the protected cells;

(5) no sale, exchange, transfer of assets, dividend, or distribution may be made from a protected cell to a sponsor or participant without the director's approval and in no event may the approval be given if the sale, exchange, transfer, dividend, or distribution would result in insolvency or impairment with respect to a protected cell;

(6) a sponsored captive insurance company annually shall file with the director financial reports the director requires, which shall include, but are not limited to, accounting statements detailing the financial experience of each protected cell;

(7) a sponsored captive insurance company shall notify the director in writing within ten business days of a protected cell that is insolvent or otherwise unable to meet its claim or expense obligations;

(8) no participant contract shall take effect without the director's prior written approval, and the addition of each new protected cell and withdrawal of any participant of any existing protected cell constitutes a change in the business plan requiring the director's prior written approval.

SECTION 38-90-220. Requirements applicable to sponsors.

A sponsor of a sponsored captive insurance company must be an insurer licensed pursuant to the laws of a state, an insurance holding company that controls an insurer licensed pursuant to the laws of any state and subject to registration pursuant to the insurance holding company system laws of the state of domicile of the insurer, a reinsurer authorized or approved pursuant to the laws of a state, or a captive insurance company formed or licensed pursuant to this chapter. A risk retention group may not be either a sponsor or a participant of a sponsored captive insurance company. The business written by a sponsored captive insurance company with respect to each protected cell must be:

(1) fronted by an insurance company licensed pursuant to the laws of:

(a) any state; or

(b) any jurisdiction if the insurance company is a wholly owned subsidiary of an insurance company licensed pursuant to the laws of any state;

(2) reinsured by a reinsurer authorized or approved by this State; or

(3) secured by a trust fund in the United States for the benefit of policyholders and claimants funded by an irrevocable letter of credit or other asset acceptable to the director. The amount of security provided by the trust fund may not be less than the reserves associated with those liabilities, including reserves for losses, allocated loss adjustment expenses, incurred but unreported losses, and unearned premiums for business written through the participant's protected cell. The director may require the sponsored captive to increase the funding of a trust established pursuant to this item. If the form of security in the trust is a letter of credit, the letter of credit must be established, issued, or confirmed by a bank chartered in this State, a member of the federal reserve system, or a bank chartered by another state if that state-chartered bank is acceptable to the director. A trust and trust instrument maintained pursuant to this item must be in a form and upon terms approved by the director.

(A) An association, a corporation, a limited liability company, a partnership, a trust, or other business entity may be a participant in a sponsored captive insurance company formed or licensed pursuant to this chapter.

(B) A sponsor may be a participant in a sponsored captive insurance company.

(C) A participant need not be a shareholder of the sponsored captive insurance company or an affiliate of the company.

(D) A participant shall insure only its own risks through a sponsored captive insurance company, unless otherwise approved by the director.

(A) Except as otherwise provided in this chapter, the terms and conditions provided in Chapter 10 relating to a protected cell insurance company apply in full to a sponsored captive insurance company.

(B) In the case of a sponsored captive insurance company:

(1) a protected cell need not be established solely for the purpose of effecting insurance securitizations, but may be established for the purpose of isolating the expenses and claims of a sponsored captive insurance company participant;

(2) the sponsored captive insurance company shall attribute all insurance obligations, assets, and liabilities relating to a participant's risks to the participant's protected cell; and

(3) Section 38-10-40(F) does not apply.

SECTION 38-90-240. Eligibility of licensed captive insurance company for certificate of authority to act as insurer.

A licensed captive insurance company that meets the necessary requirement of this title imposed upon an insurer must be considered for issuance of a certificate of authority to act as an insurer in this State.